Paycheck Chronicles

You May Get A Student Loan Refund


Service members with federal student loans may be eligible for refund of interest and fees if they were mistreated by Sallie Mae and its former subsidiary Navient Solutions.

Under the Servicemembers Civil Relief Act (SCRA), borrowers who are serving the military have special benefits and rights with regard to debt.  This includes a reduction of interest rates on debts incurred prior to military service, and certain protections against legal actions while serving.

Federal prosecutors, acting on behalf , claim that the loan servicers denied SCRA eligible borrowers’ interest rate reduction requests, assessed excess interest, and charge unlawful late fees.  In addition, Sallie Mae took legal action against servicemembers without documenting the borrowers military service in the lawsuits.

In two different cases, Sallie Mae (and its former subsidiary) have been ordered to pay $60 million in restitution and  refund up to $30 million in improperly assessed late fees.  Both companies must inform all three major credit bureaus of erroneous information regarding interest-rate overcharges and improper legal judgments, and request that the credit bureaus remove the inaccurate information from the servicemember's credit reports.

The companies must also simplify the process for service members to prove their eligibility under the SCRA statute. While they have always had the ability to verify military service the Defense Department database, the loan servicers instead required substantial documentation.  This created a hardship to accessing the benefits of the law.

Up to 60,000 service members were affected by the unlawful practices.  An independent administrator will be responsible for disbursing the refunds and compensation.  Servicemembers will be contacted directly by the third-party administrator.

Federal prosecutors plan to examine the records of the nation's other large student loan servicers, looking for similar failures to provide SCRA protection to eligible military members.

What does this mean for you?  If you have had a student loan since 2005, and it was serviced by Sallie Mae or Navient, you may be contacted about a possible refund.   You may also have inaccurate negative information removed from your credit report.

At that time, you will need to take steps to verify the legitimacy of the contact.  Unfortunately, that this is exactly the type of situation that could be used by identity thieves to obtain personally identifying information.  I'm not saying that it will happen, but this is you should always be vigilant.

An estimated timeline has not been released.  These huge settlements can take years to be fully resolved.  In the meantime, keep your contact information up-to-date with your loan servicers and credit bureaus.

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